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CIRCULAR No

CIRCULAR No. 72/1999/TT-BTC OF JUNE 12, 1999 GUIDING THE IMPLEMENTATION OF THE LAW ON VALUE ADDED TAX FOR ACTIVITIES IN THE MARITIME SERVICE

Pursuant to the Law on Value Added Tax No. 02/1997/QH of May 10, 1997;

Pursuant to Decree No. 28/1998/ND-CP of May 11, 1998 of the Government detailing the implementation of the Law on VAT and Decree No. 102/1998/ND-CP of December 21,1998 of the Government amending and supplementing a number of Articles of Decree 28/1998 /ND-CP;

In order to carry out the Law on Value Added Tax in a way conformable with the business and service activities in the maritime service, the Ministry of Finance provides the following guidance on the implementation of the Law on VAT for the activities in the maritime service:

I. SCOPE OF APPLICATION OF THE VAT

1. Subjects liable to VAT:

a/ Transport on sea routes and on inland river ways are transport activities among sea ports and river ports in the country.

b/ Services of exploiting sea ports and river ports include: loading and unloading, storing at yards, support in ship towage, rope tying and untying, opening and closing shipholds, cleaning shipholds, supplying fresh water, food and fuel for inland cargo ships or supplying indirectly through another unit to international cargo ships , checking and counting, taking delivery of merchandise, wharf toll and berthing fees, lease of equipment and means...

c/ Maritime services include:

- Shipping agent is the service of filling in procedures for ships moving in and out of sea ports. This agent charge shall be collected according to the tariff stipulated by the Government Pricing Commission and for each shipment.

- Transport agent, agent for goods delivery and reception, purchase and sale, taking delivery of ships, selling and buying of equipment and spare parts, agent for leasing containers.

- Service of chartering ships for units in the country or units with foreign investments in Vietnam.

- Maritime brokerage: This is the service of acting as broker (third party) for the purchase or sale of ships or other selling and buying activities in the maritime service. It is called maritime brokerage when it involves three parties: the seller, the buyer and the broker.

- Maritime mechanical repairs for inland transport means.

d/ Service of exporting shipping crews

2. Subjects not liable to VAT:

a/ International maritime transport: This is conceived to be foreign ships or ships of units in the country taking part in the transportation of cargoes from Vietnamese ports to foreign ports and vice versa, and cargo transport from a foreign port to another.

b/ Service of direct loading and unloading of imports and exports from the ports to international cargo ships, of which the loading and unloading charge is part of the international maritime transport charge stipulated by the Government Pricing Commission to be collected in foreign currency (USD) according to these types of work:

- Unloading goods from shipholds to carriages, automobiles or launches, and vice versa; and unloading of goods from shipholds and launches to port warehouses and yards, and vice versa.

- Unloading containers from shipholds to carriages, automobiles or launches, and vice versa; unloading containers from shipholds and launches to port warehouses and yards, and vice versa.

(These activities do not include loading and unloading empty containers from the shipholds, and loading and unloading goods bound for dry docks).

c/ Service of chartering ships on terms or empty ships to foreigners.

d/ Chartering foreign ships and re-chartering them to foreign units.

e/ Activities of direct supply of fresh water, food and fuel to ships engaged in international maritime transport. In this case, there must be specific certificates of direct supply to each ship with the name of the ship owner and the dates of departure and the place of destination. In case the itinerary of the ship has concretely specified the departure of the ship from a Vietnamese port passing through another Vietnamese port for a specific port outside the Vietnamese territory, the above supply activities to the ship are also not subject to VAT. The concept of direct supply denotes the direct issue of receipt to the owner of the ship involved in international maritime transport.

Example 1: Port A directly supplies fuel and fresh water to ship B. Before leaving port A, the ship is known to carry merchandise on the itinerary from Port A to Tokyo or Port A - Haiphong - Tokyo. In this case, the supply activities of Port A are not subject to VAT and Port A shall issue an ordinary receipt to the ship owner.

Example 2: Port A supplies fuel and fresh water to Agent C which later re-supplies them to ship B involved in international maritime transport. If the itinerary of this ship is also determined as in Case 1 mentioned above, this supply service of Port A to Agent C remains an object of VAT. When issuing the receipt to Agent C port A shall use VAT receipt. The supply of fresh water and fuel by Agent C to ship B shall not be subject to VAT. Agent C shall issue an ordinary sales receipt to the ship owner.

Example 3: Port A directly supplies fresh water and fuel to the owner of ship B but this ship cannot provide a concrete itinerary as above to prove its international transport activities. In this case, the supply service of Port A still is subject to VAT and the receipt must be a VAT receipt.

f/ Repairing transport means involved in international maritime transport (including replacement parts supplied by the repair unit). In case the domestic transport unit involved in international maritime transport cannot separate the turnover of each ship and each shipment in international maritime transport, this would be determined on the basis of the rate between the turnover from international maritime transport and the turnover from the domestic sea transport in the previous year. If in the previous year the turnover from international maritime transport accounts for more than 50% of the total transport turnover (verified and certified by the direct managing tax office) and if in the following year the unit takes its ship for repair, the repair unit shall not have to pay VAT for this repair, and inversely.

Example: Transport company A in Haiphong city in 1998 has an international maritime transport turnover accounting for 51% of the total transport turnover. This rate has been certified in writing by the Haiphong Tax Office. In 1999 the company takes its ship X for repair by Company B. The repair of ship X by Company B shall not be subject to VAT.

3. Subjects to VAT:

Subjects to VAT are units performing services liable to VAT and other services stipulated at Point 1, Clause 1 of this Circular. They include:

- Independent economic accounting companies;

- Company branches based in localities other than the locality where the company has its main office.

- The Office of the Vietnam Maritime Corporation.

II. METHOD OF TAX CALCULATION

The VAT to be paid by the independent economic accounting companies and dependent branches and the Office of the Corporation shall be calculated according to the tax deduction method:

VAT to be paid = Output VAT - Deducted input VAT

1. Output VAT:

Output VAT is determined on the basis of the price for VAT calculation multiplied by the tax rate. For the freight and the seaport charge collected according to the freight tariff stipulated by the Government Pricing Commission, the price for VAT calculation is the price without VAT. It is calculated as follows:

Price set at the price level stipulated

Price by the Government Pricing Commission

without = �����������������

VAT 1 + Tax rate

Output VAT = Price without VAT x Tax rate

The business establishments shall issue receipts of service provision which are VAT receipts. The method of determining the price without VAT and the VAT shall conform to the above formula. In particular, for the issue of VAT receipt to the foreign ship owner for the direct collection of freight and port charge according to the tariff and charge stipulated by the Government, when writing the VAT receipt, only the total sum paid must be recorded, and there is no need to separate the price without VAT and the price with VAT in the receipt. In declaring the tax, the receipt issuing unit in this case shall be allowed to re-calculate its tax according to the above formula to determine the output VAT.

The price to calculate the output VAT and VAT rate for each kind of activity is stipulated as follows:

- For the transport service, it is the freight charge without VAT. The VAT rate for this service is 10%.

- For the service of exploiting seaports, the price for tax calculation shall be set according to the above mentioned formula, and the tax rate is calculated separately depending on each concrete service. The price of services of exploiting seaports without VAT shall be based on the tariff of the various kinds of freight charge, and fee as stipulated by the Government Pricing Commission.

- For the service of maritime brokerage, the tax calculation price is the sum collected from the brokerage service without VAT. If the turnover already includes VAT, it must be converted according to the above formula in order to determine the price without VAT. The VAT rate of this activity is 20%.

- With regard to the service of shipping agent, the tax calculation price shall be based on the price tariff stipulated by the Government Pricing Commission and converted according to the above formula. The VAT rate of this activity is 20%. For the units acting as shipping agents which conduct other service activities, if they have all the legal grounds to separate each service, the VAT rate shall be calculated separately for each concrete service. If separation is impossible, the common tax rate of 20% for the activities of shipping agents shall apply.

- For the business establishments acting as agents in transport or agents in delivery and taking delivery of merchandise and also as agents in collecting on behalf of their customers, the output VAT is determined on the principle of integrating all the collections from the customers. The taxable turnover is the total collection minus (-) the international freight (if any) and the expenditures arising outside Vietnam certified by foreign countries. This turnover is the basis to issue VAT receipt and to calculate the output VAT. The turnover from collections on behalf of the customers is only the turnover for VAT calculation. It must not be regarded as the turnover to calculate the other revenues such as the taxable tax income or the salaries... The international freight (based on the real international freight to be paid or under contract or agreement between the agent and the customer) and the expenditures arising outside Vietnam certified by foreign countries is the basis for the agent unit to issue sales receipt to the customer. In case of acceptance by the goods owner, the agent may issue ordinary sales receipt for collection on behalf of the ship owner of all the freight and then the agent shall issue the VAT receipt to the ship owner according to the amount it has actually received and on the basis of this receipt to determine the output VAT of the agent unit.

Example 1: Company A is a maritime transport agent. It accepts a package deal to transport for Company B one ton of merchandise from Hanoi to Singapore at the package rate of 1,000 USD.

Instance 1: Company A hires Maritime Transport Company C to transport this ton of merchandise from Haiphong Port to Singapore, at the international maritime freight of 600 USD to be paid to Company C. Since international maritime transport is not subject to VAT, Company A shall issue the following receipts to Company B:

+ An ordinary sales receipt listing the payment price of 600 USD which is the international maritime freight charge paid on behalf of Company B.

+ A VAT receipt recording the remaining sum of 400 USD (including VAT). The VAT to be paid recorded on the receipt is:

400 USD

���� x 10% = 36.36 USD

1 + 10%

Instance 2: If Company A cannot yet determine the international freight to be paid to Maritime Transport Company C, the charge shall be determined according to the contract or agreement between Company A and Company B. Supposing that in this case the agreement is 800 USD, Company A shall issue the following receipts to Company B:

+ A sales receipt recording the international maritime freight without VAT valued at 800 USD;

+ A VAT receipt recording the remaining sum of 200 USD (including VAT). The VAT to be paid by Company A is:

200 USD

���� x 10% = 18.18 USD

1 + 10%

Example 2: Company A acts as transport agent for Company B to transport a consignment from Japan to Vietnam for a charge of 100 million VND (including the freight to be borne by the buyer and other expenditures in Japan). Based on the bill of lading of the foreign shipping company X, the freight from a foreign country is 80 million VND converted into Vietnamese currency. Certified other expenditures in Japan are 5 million VND. Company A shall issue the two following receipts to Company B: a sales receipt without VAT valued at 85 million VND (including international maritime transport charge and fully certified expenditures in Japan); a VAT receipt for Company B for the remaining sum of 15 million VND, and the output VAT of Company A is determined at:

15 million VND

������� x 10% = 1.363 million VND

1 + 10%

Example 3: Company A is an agent for goods owner B. It undertakes to transport 1 ton of goods from Hanoi to Taiwan. The total sum that goods owner B has to pay is 50 million VND (including VAT). Ship owner C is the chartered transporter for Company A. He shall collect the package freight of 50 million VND. Company A shall issue an ordinary sales receipt to goods owner B who shall collect 50 million VND on behalf of ship owner C. Based on the contract or agreement between Company A and ship owner C, the real freight ship owner C is entitled to is 40 million VND, and Company A shall receive 10 million VND. Company A shall issue a VAT receipt for the ship owner valued at 10 million VND. The output VAT of Company A listed in the receipt is:

10 million VND

������� x 10% = 0.909 million VND

1 + 10%

- Other activities such as repair of inland transport means, chartering a foreign ship and later re-chartering it to a unit in the country (including units with foreign investment in Vietnam), purchase and sale of equipment and spare parts, agent for leasing containers, maritime consultancy� and other service activities (except shipping agent, maritime brokerage: VAT rate is 20%) in the maritime service. VAT turnover is the turnover coming from the above services without VAT, VAT rate is 10%.

To unify the stipulations on the currency listed in the receipts, if the collection in the goods service according to the freight tariff is made in a foreign currency, the listing in the receipt shall be made in the original currency but the rate of exchange into Vietnamese currency must be clearly stated in the receipt in order to determine the output VAT. The exchange rate into VND shall be based on the average transaction rate in the inter-bank foreign currency market at the time of receipt issue.

2. Input VAT:

The taxable objects as stipulated at Point 3, Section 1 of this Circular shall have to declare their input VAT on the principle: input VAT of service goods purchased for use in VAT taxable production, business and service activities in a month shall be integrated for declaration in order to make deduction right in that month; if in the month of tax declaration the deducted input VAT is higher than output VAT, the deduction shall be made in the following month of tax declaration.

With regard to the business establishments with both VAT liable and VAT non- liable goods and service turnovers, they must account separately the input VAT (including also the VAT on the payments on behalf of the agent units) of the VAT liable and non- liable goods and services in order to determine the deducted and non-deducted VAT input tax to be paid. If the business establishment cannot account the VAT separately, the method of percentage assignment of the VAT liable turnover compared to the total turnover shall apply to determine the input VAT to be deducted.

III. VAT DECLARATION AND PAYMENT

1. The independent accounting companies shall declare and pay VAT at the place where the company is headquartered. In case the company and these units have branches and shops with dependent accounting and conducting business together at the place where the company and units have their offices, the VAT shall be declared and paid in common on behalf of the dependent branches and shops. Monthly these branches and shops must draw up the table of VAT lists and send it to the company and unit in order to make the integrated tax declaration for payment to the State budget.

The dependent branches and shops conducting business in localities other than the place where the company is headquartered, shall have to make VAT declarations to pay VAT at the locality of their business (the locality mentioned in this Circular is a province or centrally-run city).

2. Reimbursement of VAT: The VAT taxable companies and units engaged in business and services liable to VAT must make declaration to pay VAT. If the deducted input tax is bigger than the output tax and is eligible for VAT reimbursement, then the business company or unit must make a dossier proposing tax reimbursement under the regime and submit it to the tax office for consideration and settlement of tax reimbursement for the company or unit.

IV. ORGANIZATION OF IMPLEMENTATION

1. The Vietnam Maritime Corporation, the Communications and Transport Service, the provincial/municipal Tax Offices shall guide the units to conduct the declaration, calculation and payment of VAT as directed in this Circular.

2. On receipts and other certificates: these shall comply with the current prescriptions of law on receipts and certificates .For those collections not liable to VAT, ordinary sales receipts shall be issued. For those collections liable to VAT, VAT receipts shall be issued.

3. This Circular takes effect 15 days after its signing. The other contents not directed in this Circular shall continue to be effective under the stipulations in Circular No. 89/1998/TT-BTC of June 27, 1998 and Circular No. 175/1998/TT-BTC of December 24, 1998 of the Ministry of Finance. The guiding documents on the implementation of VAT for the units which have been issued but which no longer conform with the guidance at this Circular are now annulled.

In the course of implementation if any difficulty arises, the organizations and individuals are requested to report it to the Ministry of Finance for study and settlement.

For the Minister of Finance

Vice Minister
PHAM VAN TRONG